The department said this year's corn production is now estimated to be 12.2 billion bushels, up from September's estimate of 12.1 billion.
Soybean production is projected to be 2.98 billion bushels, higher than last month's forecast of 2.93 billion bushels.
The corn crop benefited from September rains that "brought much needed moisture" to many corn-growing regions, the department said.
The USDA also raised its projections for wheat production to 2.5 billion bushels from 2.46 billion.
Cotton production, meanwhile, is now expected to be lower. The department expects 13.7 million bales, down from last month's estimate of 13.85 million, partly due to the impact of Hurricane Gustav on cotton growers in Louisiana and Mississippi.
Stockpiles of corn, soybeans and wheat are expected to be higher at the end of this year. Corn stocks are projected to be 1.15 billion bushels, up from last month's estimate of 1.02 billion bushels, while soybean stocks are projected to come in much higher, at 220 million bushels, up from 135 million.
Wheat stocks, meanwhile, are estimated to be 601 million bushels, up from 574 million last month.
The increased supplies likely will lead to lower prices. The department lowered its estimate for the season-average price for corn to a range of $4.20 to $5.20 per bushel, down 80 cents from last month's range.
The season-average soybean price is now projected to come in sharply lower, between $9.60 and $11.10 per bushel, down $2 from last month's range. Wheat prices are also projected lower, at $6.60 to $7.40 per bushel, down from $6.70 to $7.80 last month, the department said.
Due partly to slowing demand in the U.S. and overseas, corn and soybean prices have dropped steeply from the highs they reached after floods devastated the Midwest in June.
After the floods, corn prices jumped to record highs of almost $8 a bushel, up from just over $3 in early 2007. Soybeans jumped to more than $16 a bushel, from $6.30 in early 2007.
Since then, prices have dropped by almost half. Corn for December delivery finished at about $4.38 a bushel Thursday on the Chicago Board of Trade, while soybeans finished at $9.80.
Commodity prices are closely watched by companies that use corn and soybeans for livestock feed, such as Tyson Foods Inc., Pilgrims Pride Corp. and Smithfield Foods.